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The Company has financial instruments that are measured
at fair value. To determine the fair value, we use the fair value hierarchy for inputs used in measuring fair value that maximizes
the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used
when available. Observable inputs are inputs market participants would use to value an asset or liability and are developed based
on market data obtained from independent sources. Unobservable inputs are inputs based on assumptions about the factors market
participants would use to value an asset or liability. The three levels of inputs that may be used to measure fair value are as
follows:
| ● | Level one - inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| ● | Level two - inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly such as interest rates, foreign exchange rates, and yield curves that are observable at commonly
quoted intervals; and |
| ● | Level three - unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity
and reflect those assumptions that a market participant would use. |
Assets and liabilities are classified based on the
lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may
result in a reclassification of levels for certain securities within the fair value hierarchy.
The Company’s financial instruments consist
of cash and cash equivalents, other receivables, accounts payable, related party payables and derivative liability. The carrying
values of cash and cash equivalents, other receivables, accounts payable and related party payables approximate their fair values
due to the immediate or short-term maturity of these financial instruments.
Derivative liability
The Company accounts for certain warrants under the
authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s
own stock, on the understanding that in compliance with applicable securities laws, the warrants require the issuance of securities
upon exercise and do not sufficiently preclude an implied right to net cash settlement. The Company classifies these warrants
on its balance sheet as a derivative liability which is fair valued at each reporting period subsequent to the initial issuance.
The Company has used a Black-Scholes Option Pricing Model (based on a closed-form model that uses a fixed equation) to estimate
the fair value of the share warrants. Determining the appropriate fair-value model and calculating the fair value of warrants
requires considerable judgment. Any change in the estimates (specifically probabilities and volatility) used may cause the value
to be higher or lower than that reported. The estimated volatility of the Company’s common stock at the date of issuance,
and at each subsequent reporting period, is based on the historical volatility of the Company. The risk-free interest rate is
based on rates published by the government for bonds with a maturity similar to the expected remaining life of the warrants at
the valuation date. The expected life of the warrants is assumed to be equivalent to their remaining contractual term.
| a) | Fair value of derivative liability |
The derivative is not traded in an active market and
the fair value is determined using valuation techniques. The Company uses judgment to select a variety of methods to make assumptions
that are based on specific management plans and market conditions at the end of each reporting period. The Company uses a fair
value estimate to determine the fair value of the derivative liability. The carrying value of the derivative liability would be
higher, or lower, as management estimates around specific probabilities change. The estimates may be significantly different from
those amounts ultimately recorded in the consolidated financial statements because of the use of judgment and the inherent uncertainty
in estimating the fair value of these instruments that are not quoted in an active market. All changes in the fair value are recorded
in the consolidated statement of operations and comprehensive loss each reporting period. This is considered to be a Level 3 financial
instrument as volatility is considered a Level 3 input.
The Company has the following liabilities under
the fair value hierarchy:
| | |
March 31, 2019 | |
| Liability | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
| | | |
| | | |
| | |
| Derivative liability | |
$ | - | | |
$ | - | | |
$ | 265 | |
| | |
June 30, 2018 | |
| Liability | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
| | | |
| | | |
| | |
| Derivative liability | |
$ | - | | |
$ | - | | |
$ | 1,117 |
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